Editor’s note: Analysis: Two years into its five-year strategy, HP (NYSE: HPQ) is on track but years away from a growth turnaround, says Technology Business Research, says Jillian Mirandi of research firm Technology Business Research. Her analysis comes after HP posted its latest earnings Tuesday.

HAMPTON, N.H. - HP Software continues on its path towards the center of HP’s strategy as the company transitions from an IT-centric products-focused company to an integrated, business solutions company.

Over the past few years HP has taken steps towards improving HP Software including billions of dollars in acquisitions to address demand in growth markets such as BI and analytics, and security. The next step in HP Software’s, and HP’s, evolution is integration.

The company has created and acquired a lot of IP and has the means to combine this technology to address business needs as opposed to technical problems. The company has begun to integrate and package its disparate portfolios to form solutions, most notably combining aspects from HP’s hardware, software, and professional services group to create HAVEn.

The company is on track in accordance to its five year plan (announced in 2012), and although both HP Corporate and HP Software saw negative CY3Q13 growth, TBR agrees with CEO Meg Whitman in that a growth turnaround is possible, but years away.

As HP continues to push through their restructuring plan, the company’s corporate revenue dropped 3% in CY3Q13 and Software revenue dropped 9% from the year-ago quarter to $1.1 billion.

This decline can be attributed to a significant deterioration in license revenue, which dropped 24% year-to-year after the largest deal the company has signed to-date was realized in the year-ago quarter. Excluding this deal, HP Software revenue decreased in line with corporate revenue at 3%. 3Q13 growth highlights included cloud, automation, and SaaS bookings, security growth, and Autonomy’s 3rd sequential quarter of license revenue growth.

Integration strategy

HAVEn is the result of HP’s integration strategy evolution. The company is releasing bundled solution sets that enable HP business groups and partners to build and customize BI and analytics solutions. HAVEn additionally enables partners to drive revenue by cross-selling security solutions into HP Software’s established Autonomy and Vertica customer bases and vice-versa. While HP Software increased R&D investment, resources remain limited to aggressively invest in all areas of need. The updated integration strategy will offer opportunity and spread resources. Most recently, HP Software launched Digital Marketing Hub build on HAVEn. Building this hub is evidence that HP Software is committed to expand value and integrate its resources.

HP Software must expand 

Organically, TBR maintains that HP Software has remained stagnant over the years. The business unit was shielded from reporting a lack of growth over the past few years by the acquisitions of ArcSight, Vertica and Autonomy. With Whitman putting an end to the influx of acquisitions, HP Software’s true issues have bubbled to the surface resulting in a revenue decline of 9% in the quarter.

HP’s lagging hardware performance is also greatly affecting its HP Software as TBR believes that software is heavily discounted to secure hardware renewals. HP Software is technically vendor agnostic, but we believe that HP’s hardware customers are the main target for HP Software sales. Therefore, when HP struggles, HP Software struggles. HP Software’s sales team will need to expand outside of HP to address and win a larger market. ServiceNow continues to win customers from HP’s systems management business as customers are eager for a more flexibly, platform based solution.

(C) TBR